The Department is required to assure that fiscal control and accounting procedures for federal and state funded entities will be established to assure the proper disbursal and accounting for the federal funds paid to the state. In compliance with that assurance the Department requires program Subrecipients administering federal or state funds to maintain adequate fidelity bond coverage. A fidelity bond is a bond indemnifying the Subrecipient against losses resulting from the fraud or lack of integrity, honesty or fidelity of one or more of its employees, officers, or other persons holding a position of trust.

1. (1) In administering Contracts, Subrecipients shall observe their regular requirements and practices with respect to bonding and insurance. In addition, the Department may impose bonding and insurance requirements by Contract.
2. (2) If a Subrecipient is a non-governmental organization, the Department requires an adequate fidelity bond. If the amount of the fidelity bond is not prescribed in the contract, the fidelity bond must be for at least the greater of $50,000 or 10% of the Contract amount. In the event that the Subrecipient is administering a Reservation Agreement, and the amount of funds committed under the Contract exceeds $500,000, the amount of the fidelity bond must be increased to ensure that the amount meets or exceeds 10% of total funds reserved. The bond must be obtained from a company holding a certificate of authority to issue such bonds in the State of Texas.
3. (3) The fidelity bond coverage must include all persons authorized to sign or counter-sign checks or to disburse cash in an amount that exceeds $250. Persons who handle only amounts of less than $250 need not be bonded, nor is it necessary to bond officials who are authorized to sign payment vouchers, but are not authorized to sign or counter-sign checks or to disburse cash.
4. (4) The Subrecipient must receive an assurance letter from the bonding company or agency stating the type of bond, the amount and period of coverage, the positions covered, and the annual cost of the bond. Compliance must be continuously maintained thereafter. A copy of the actual policy shall remain on file with the Subrecipient and shall be subject to monitoring by the Department.
5. (5) Subrecipients are responsible for filing claims against the fidelity bond when a covered loss is discovered.
6. (6) The Department may take any one or more of the actions described in Chapter 2, of this Part, relating to Enforcement in association with issues identified as part of filing claims against the fidelity bond.

Source Note:The provisions of this §1.406 adopted to be effective February 4, 2026, 51 TexReg 551.